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Anybody else having an aversion to rebalancing?
Old 12-07-2008, 03:33 PM   #1
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Anybody else having an aversion to rebalancing?

Every year usually in December or January I would rebalance my portfolio. It mainly consisted of taking profits off the table from stocks and mutual funds and putting them into fixed income vehicles, money market funds, CDs, etc. In light of the market performance this year I am a bit hesitant to rebalance back the other way and take money out of my fixed income and back into the market. Anybody else struggling with this? Any suggestions, insights, words of wisdom are appreciated in advance.
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Old 12-07-2008, 03:37 PM   #2
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My investment manager has allowed my stock fund allocation to fall to about 50% this year and we have decided not to reallocate for the time being, by my request. I know he will be itching to get it back up to 65% next year but I really hope to stay very small in equities for another 6-12 months, watching the economy and seeing how I feel about it.
I have some private funds that I withdrew from the market last Jan and again in Sept. I am dollar cost averaging those back into mutual funds very very slowly.
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Old 12-07-2008, 03:51 PM   #3
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I moved 1% of my portfolio out of GNMA into money market last week. Yes, I'm dragging my feet a little but will move it into equities soon. I put larger amounts of new money into equities in June, Sept. and Oct., (now at a loss). I plan to continue moving in 1% increments every six weeks to two months next year.

I remind myself of how it felt to put new money into Intl. stock funds in the '90s, it was like a leap of faith, I sort of held my breath and bought when the price was around $8 and planned to sell over $12 which is exactly what I did. Now I'm moving some of that same money back again, but this time into the S&P.
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Old 12-07-2008, 04:04 PM   #4
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Memory says give or take - somewhere in the 80's my steely eyed rational rebalancing contained an emotional 'subconscious' element.

I have slowly- I mean slowly got to full auto for real money(Target Retirement 2015, Jan 2006).

But still have 15% of total portfolio in individual stocks. I admit to hormones and I ain't dead yet. Besides it's extra to my real retirement( he rationalizes to himself).

So I've (after forty years) whipped the rebalancing deal with full auto - but I still like to shift deck chairs on the Titanic(with the individual stocks) so to speak and convince myself it's only a hobby.

heh heh heh - BTW - Saint's won!
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Old 12-07-2008, 04:24 PM   #5
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I calculated a "minimalist retirement" in July 07 and executed it in August. It worked out to a 40% fixed income portion. That turned out to be enough cash to supplement a puny pension and my eventual SS into a decent but no frills retirement.

Right now I'm about 55% fixed income but the dollar amount is just about the same. Unless something changes dramatically, I won't be moving anything out of fixed into equities. My new money going into my 401k and SERP is going into equities but it will never get it back where it was without a good market's help.
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Old 12-07-2008, 04:37 PM   #6
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I am the opposite, in that I can't wait to move a big chunk of money from GNMA into stocks on Jan 2 (back to 57%). I guess it's because I have faith that equities will recover and that they are on sale now.

Some people have an urge to invest when stocks are declining, others when they are going up. I'm in the first group.
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Old 12-07-2008, 04:44 PM   #7
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Some people have an urge to invest when stocks are declining, others when they are going up. I'm in the first group.
I'd rather move to stocks when the market is threading water, not when it is declining.

Since I don't know which is which, I do it a little at a time. At 50% equity now, compared to my usual 70%. Gutsy? No, not compared to Haha at near 100%. But I am a self-professed chicken
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Old 12-07-2008, 05:50 PM   #8
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The crash has postponed my retirement, though my dear wife gave up her lucrative job for minimum wage at the Humane Society just before the crash. (Timing is everything. )

As part of the process of accepting the change in my portfolio's value, I decided to keep a reserve of 4 to 5 years expenses in Cash/Bonds, but to otherwise maintaining my pre-crash 70% equities allocation. So I've been buying equities. Though now I'm running out of ammo unless I dip into my 4 to 5 years of reserves. Apparently I jumped in too early. At least all "new" money will continue to go into equities until they exceed 70% of my portfolio. Though that mostly just consists of reinvested dividends these days.

My father, now in his 70's, decided to freeze his equity holdings, and to live off his bonds until the market comes back. Increasing his equity holdings while he thinks equities will/may keep going down wouldn't let him sleep well. He also has a much shorter time horizon than I do.

I think both of us probably made the right decision. With my j*b, I want to swing for the fences, and maximize my odds of escaping early, which pretty much requires lots of equities. Sure, stocks could drop another 50% from here, but I'll probably either keep my j*b, and/or stocks will bounce within four years. So the gamble seems worth while. With his short time horizon, adding stocks is just too risky. He is better off sticking with bonds, and trying to pull in his spending a bit.

I think the right answer for you depends on your time horizon, and your sleep-at-night tolerance for equities.
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Old 12-07-2008, 05:55 PM   #9
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In light of the market performance this year I am a bit hesitant to rebalance back the other way and take money out of my fixed income and back into the market.
Just do it. If you are sure of your AA, as you should be, it's a no brainer. Equities may never be this low again in your lifetime.
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Old 12-07-2008, 06:05 PM   #10
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Originally Posted by frayne View Post
Every year usually in December or January I would rebalance my portfolio. It mainly consisted of taking profits off the table from stocks and mutual funds and putting them into fixed income vehicles, money market funds, CDs, etc. In light of the market performance this year I am a bit hesitant to rebalance back the other way and take money out of my fixed income and back into the market. Anybody else struggling with this? Any suggestions, insights, words of wisdom are appreciated in advance.
It's hard. Logically it seems obvious that we should buy low, sell high. Therefore we should be thrilled at the chance to buy low this year. It has been a hair-raising dilemma for some of us, and probably hasn't been an easy process for many.

I rebalanced in three steps in October, I believe on October 10th, 14th, and 20th. I knew that rebalancing was in order, but could not bring myself to do it all at once. I was about 7% out of balance, with equities at 38% instead of 45% as planned. It helped to completely rebalance in three steps as described, each about 2% or a little more.

I intend to rebalance again if necessary at the end of the year, as is my plan. At least I won't be as far out of balance as I would have been, had I not rebalanced in October.

I cannot tell you whether or not rebalancing is a wise decision for you. That is up to you, and I do not know your personal situation. Rebalancing seems wise for me, and I know I need to do it. My suggestion is that if you want to rebalance but are having trouble doing it, it may help to do this in stages, a little at a time.
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Old 12-07-2008, 06:44 PM   #11
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Did some rebalancing this week in core stocks and international, but holding off until late December, after dividends are declared before continuing.

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Old 12-07-2008, 07:20 PM   #12
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I usually do all my re balancing on Jan.2nd . I've always had a high equity exposure but since I 'm now retired I may leave it where it is at 65% . My dividends will be reinvested so I'll still be buying low and I have thrown some mad money at a few individual stocks.
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Old 12-07-2008, 07:21 PM   #13
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A little late now, no? I'm not selling into this mess to realize my PAPER losses.
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Old 12-07-2008, 10:11 PM   #14
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How will you know when to rebalance if you don't follow your plan? Do stocks need to rise 10%, 20%, 30%, 100% before you feel safe rebalancing into them? At what point are you guaranteed they won't go down as soon as you invest? Now is as good a time as any, and better than most. Even if you want to permanently reduce your equities percentage, I'd stick with your original plan until equities are recovered. You took the ride down, so take the ride up too!
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Old 12-08-2008, 01:25 AM   #15
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As a retired guy, I've been re-balancing these past few months during the "panic of 08". But now, I'm out of fixed income to spend on cheap equity. I'm out because I have a lower FI threshold of 10 years worth of expenses at which point I stop re-balancing.

But emotionally, the hardest part isn't now. It will be later, when the market goes back up, and my re-balance policy will require me to begin selling off equities before they get back to where they were in Oct-07.
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Old 12-08-2008, 10:04 AM   #16
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Hmmm - should I send my Vanguard computers taking care of my 'full auto' rebalancing a Christmas card to buck them up - should they be worrying or suffering equity angst?

And to think I once thought I could be a steely eyed rebalancer with no emotion. .

heh heh heh - still have a few good stocks to agonize over if football gets slow.
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Old 12-08-2008, 10:31 AM   #17
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I have been rebalancing. It's uncomfortable, but I'm doing it anyway.

Audrey
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Old 12-08-2008, 10:42 AM   #18
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Yup - I know I would have an aversion to rebalancing from fixed income to equities in this market.

Which is why I'm glad I don't have to - my Target Retirement fund, that makes up the core of my portfolio, has already been doing it all along, with no input from me.

It's a benefit to the TR funds that I hadn't really considered until this most recent stock market collapse. It leaves me free to cover my eyes and try not to look at the wreckage ...

;-)
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Old 12-08-2008, 12:18 PM   #19
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The volatility has me confused. A couple of 5% surges (or dips) can throw me off very quickly.

And of course, there's the stock/bond rebalance as well as the internal stock portfolio rebalance to consider.

So I decided after rebalancing a good amount from cash into stocks, I'd just ignore any fluctuations less than 20% within the stock portfolio (domestic v. international v. REIT, etc.), and maybe 5% variance in the stock-to-bond numbers until things settle down. Too much of a hassle otherwise for me.
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Old 12-08-2008, 12:22 PM   #20
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New definition of day trader: Someone who rebalances his AA daily.
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